Let's analyze what they mean by legacy issues. Typically that means everybody is subject one way or the other, to loan buy-back demands from upstream investors. Therefore what's smarter... tying your wagon to an established or a start-up operation? Mortgage brokers face buy-back demands from their wholesale lender. Those wholesale lenders face repurchase demands from the sorts of Bank of America, Wells Fargo, or Chase who potentially holds their loans. Even those mega banks are up against it facing down Fannie and Freddie. And lately everybody is getting a target painted on their backs by the MBS investor lawyers. So... yep you know what flows down-hill!
Why do I bring up this topic? Well, for several months (20) recently I tried to obtain funding for a vertically integrated 'start-up' company that included a residential mortgage banking operation. More than once, a potential equity partner/Investor has queried as to whether buying an existing mortgage operation might not be a wiser and less expensive way to proceed. My explanation is always the same. EVERY mortgage lender that is already in business is subject to a largely unknown quantity of risk, including the potential risk of enormously expensive buy-backs. The longer they've operated and the more successful they've been; the higher the risk exposure.
But what about those news articles and press releases lately announcing 'so and so' former exec has come out from hiding and is now about to start becoming involved with a new venture. You remember, they were the ones who were former 'big shots' at Countrywide, Option One, Encore, New Century, Saxon, Countrywide and others who significantly contriburted to the mess we're in today!
What's wrong with these guys? Well, exactly their problem is they have "Legacy Brains" - they still incorrectly believe a 'strong commissioned sales culture' is the way to go in the lender business. That was never a good idea. For my money you want those old-fashioned consumer finance types, they know commissions are big mistake, and the general sales culture notion should never be the smart way to operate. I must say I'm a trifle perplexed as to why I had trouble (especially with the exec team I had at hand)acquiring funding when folks with a production-first/ loan quality second, huge sales commissions mindset are being funded.
So, when someone talks about THOSE guys and says 'They're Back!' you shouldn't think 'Hooray!' instead ... scream in terror and Run for the Hills! I would think that those old-fashioned consumer finance types, like me and my team, who realize that the tail should never wag the dog, would be a wiser choice for an equity partner/Investor. Am I missing something?
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